Updated
5/04/07, 5:30PM PDT

Highlights
of IBM Partnerworld 2007 Conference

ST. LOUIS, Apr 30, 2007 - Some
4,000 IBM business partners from all over the world gathered here, at America's
Gateway to the West-city, for the opening of Partnerworld 2007 on Apr
30. A three-day event was held at the Edward Jones Dome, the
football stadium that is home to NFL's St. Louis Rams. It was this writer's first time at a Partnerworld event.
So we bring
you here, also for the first time, a pictorial as well as a narrative
report about it (click here
for a full client report on Day
1).

[charts here]

The Opening Act...

The show began with a spectacular,
high-voltage dance performance by a local group. The theme was
globalization and internationalism... in music and dance as in the IT
industry.

[charts & photos here]

The Opening Speeches...

The
Indian-born Ravi Marvaha, IBM's top business partner management executive
(right), was a perfect choice to kick off an event whose theme was
globalization. He said that in 2006, IBM grew its revenues earned
through business partners by 11%. That's nearly three times the IBM
overall growth rate (up 4% organically, without the divested PC business,
or virtually flat as reported).

[charts & photos here]

[snip]

Steve
Mills (left), the head of IBM software who followed Marvaha on the stage,
later said that $1 billion of that $2.5 billion total is invested in
support of ISV (Independent Software Vendors) activities. Business
partners account for about 30% share of IBM software's global revenues,
Mills said. He expects them to represent more the majority of the
business in the future.

[snip]

Geographies.
Yet despite being the largest IT services company in the world, IBM's
share of the services market is only about
10%, according to Marc Lautenbach (left), the head of IBM North America,
who formerly managed IBM's SMB business in its embryonic stage. "That's because services accounts for the largest share of IT
spending due to it being so labor-intensive," he added.

[snip]

[charts & photos here]

The preceding are some of the interesting charts that
backed up the presentation by IBM North America executives about their
business and the SMB opportunity there.

[snip]

High
Labor Costs. The world's total IT market
was $1.2 trillion, according to Mills. The top IBM software
executive said that labor accounts for more than 50% of the vendor
spending, and the same is true of the customers' in-house IT costs. The replacement value of the world's software is about $20 trillion, which
is why "nobody can afford to do that," from a labor standpoint.
So companies are modernizing their code in stages,
and trying to save money through offshoring and centralization of
resources.

[snip]

Which shows that, as hard as it may
be trying, it is very difficult for the Big Blue leopard to change its
spots. That is why we recommended IBM create a new "Baby
Blue" brand last fall (see "From
Little Acorns Mighty Oaks Grow," Nov 2006), and which is what
Bill Zeitler, the head of IBM hardware, did back in January (see "IBM
Lowers Its Center of Gravity," Jan 2007). It remains to be
seen if other lines of business join in.

A
"No Name" Decade? Try "GooglePod" Era

Mills closed by noting that nobody has as yet named the
current decade the way IT people used to refer to the "PC era"
or the "client/server era" in the past. He concluded that
that was because the future will be business-driven,
not technology-driven. "The customers are in control," he
said. "I am incredibly optimistic about the future."

Actually, while nobody in corporate
boardrooms may be referring to the current period with a new buzzword,
this is hardly a "no name" decade. The decade is being
defined by upstart companies and ideas, such as Google or Apple's iPod,
for example, that are thriving in mass markets IBM has chosen not to be
in. They are empowering individuals and small companies to compete
with giant corporations (Google), or just enriching their lives (iPod).
Back in 1994, we likened them to the invention of the handgun. In an implicit recognition of their popularity, even the IBM web
site is offering "podcasts" to its visitors (click on the right
icon to see it.

So how about the "GooglePod"
era? It is breathing a new life into MySpace and You(r)Tube in
SecondLife?

Is
History Repeating Itself? All of this is
kind of reminiscent of another era, 30 years ago, when IBM was missing the
boat on the significance of new industry trends. As
"micros" proliferated (the name the industry used back then to
describe the pre-PC products), and companies like Apple thrived, IBM
shunned these opportunities dismissing them as "hobbyist"
market. This writer quit IBM in 1978, for example, because he
got tired of fighting the corporate brass when he advocated that IBM ought
to be in such developing markets. Three years later, IBM reversed
itself and entered the business, creating the buzzword "PC" in
the process (though we've heard some Apple executives claim that they were
the first to use that term).

Here we are, 30 years later, and the
same companies - Apple and IBM - are at it again. "The more
things change, the more they are the same" (Alphonse Karr,
1809-1890).

Creating a Culture of
Innovation

The next speaker, Sir Ken Robinson
(right), was introduced as "one of the world's greatest thinkers
on
creativity and innovation." Liverpool-born, a former professor
of philosophy at Warwick University in Britain, lives in Los Angeles now.

"We don't grow into creativity;
we grow out of it," he asserted. "Somewhere on our way
from childhood to adulthood, we lose it. Yet
creativity is the highest form of intelligence."

An eloquent and entertaining speaker,
Sir Robinson offered some examples in support of his theory that our
social attitudes can stifle creativity as well as encourage it.

[snip]

Exhibits &
Afternoon Sessions

The
preceding scenes from the exhibition hall and the luncheon area should
give you a good feel about the enormity of the St. Louis Convention Center
that's attached to the Edward Jones Dome. Considering that they are
both located in downtown St. Louis, which is obviously thirsting for
business judging by the number of closed stores and other rundown
buildings, IBM and its 4,000 partners were most welcome guests.

[snip]

Off to the Races with
IBM Software Team

The theme of IBM Software team's Executive Forum was car
racing...

[charts & photos here]

By the time all the dust and smoke had settled, the team
software executive members, led by Mike Borman, the head of global sales
and marketing, assembled on stage for short presentations and a
mock-up Q&A (a mock up, because Borman was asking prescripted
questions). They even included a lady "driver" (Ilse
Cilliers, the head of IBM Northeastern Europe software business - right
thumbnail).

Here are some interesting points that emerged from that
discussion...

[snip]

The IBM Software would-be racers were followed on stage by
a real racing legend - Mario Andretti (right thumbnail above). It
suffice it to say that he was more of a legend before than after his long
and boring speech, which he read verbatim from prepared remarks.

IBM Chairman
Emphasizes SMB, Echoes
Our January SMB Headline But in Different Context: "It's All About
Collaboration"

[charts & photos here]

Partnerworld participants were
welcomed back to the St. Louis Dome by an energetic group that played
Eagles' and other favorite classic rock hits. And then IBM
chairman and CEO, Sam Palmisano, took the stage...

ST. LOUIS, May 1, 2007 -
"Our strategy is all about integration, collaboration and
innovation," IBM chairman and CEO, Sam Palmisano, told some 4,000
business partners assembled at the St. Louis Dome (football stadium) on
May 1. He added that, "a
globally integrated enterprise is inherently an architecture of
partnership."

Palmisano
also said that the SMB (small and medium size business) market is "the
biggest IT growth
opportunity in the world today" in which IBM "partners play a
central role." The global SMB market is a $487
billion opportunity, growing at 6.5%, he thinks. And 47%
of IBM's SMB revenue is driven by the business partners, he added.

[snip]

Emphasis
on Innovation

What
actually drives success in IT is innovation, we think. And IBM
evidently does, too. The company has been investing heavily in it,
both directly - through R&D, and indirectly - through collaborative
developments with its partners and customers (see "An
IBM Seedling: Technology Collaboration Solutions," Nov 2006).

Last
year, IBM commissioned a survey of over 750
global CEOs and government leaders, Palmisano said. It
asked them how innovation takes place today?

[snip]

"They
said that the best innovators donít do it all themselves,"
Palmisano said."They
collaborate... In
todayís global economy, no one stands alone.Every one of our organizations is part of an ecosystem of business
partners, government agencies, universities and research labs, customers
and competitors."

Furthermore,
a vast majority of CEOs realized their companies must change, but a scant
one-fifth of them thought they were good at changing. Here are some
conclusions IBM drew from that survey:

Select
Other Palmisano Slides...

[charts & photos here]

Emphasis
on SMB

Steve
Solazzo, the head of IBM SMB business, had the unenviable role of
following his leader on stage and putting a spin on chairman's
words. Here are some slides and charts from his talk and the
business partner panel that followed:

[charts & photos here]

Solazzo stressed the "simple
solutions to tough problems" - a stated goal of IBM
"Express" offerings, a Big Blue euphemism for its SMB
solutions. He said IBM would be investing $200 million in support of
this campaign."

[snip]

[charts & photos here]

Of the three business partners that
participated in the SMB panel (above), the comments by the Dynax president
(a small systems integrator from the Northeast - second from left above),
were the most illuminating.

This IBM partner said that after
listening to the Big Blue CEO's speech, he thought...

[snip]

Emphasis
on Innovation, Act II

Rod
Adkins, the head of development at IBM hardware (STG) group, who followed
the SMB panel, tried to reinforce his chairman's message about the
importance of developing a culture of innovation.

[charts & photos here]

Adkins
started with a long list of markets in which IBM hardware is ranked as No.
1 in terms of revenue market shares (third thumbnail above). He
followed up with some examples that he said illustrated IBM's
technological leadership (rightmost thumbnail)...

[charts & photos here]

...
as well as some applied uses of it (the three slides above). Adkins
then brought on stage Tom Bradicich, an IBM fellow and vice president of
its blade business, for a live demonstration of this technology in a CATIA
(manufacturing automation) environment.

[snip]

Adkins
finished up with what he called the "coming attractions" - a
preview of the next generation of the System p Power6 chips, the new entry
blade servers and other products IBM has planned for release in 2007:

[snip]

New
Chip Technology Breakthrough

Two
days later (May 3), IBM made a splash with an announcement of a application
of a breakthrough self-assembling nanotechnology to conventional chip
manufacturing, borrowing a process from nature to build the next
generation computer chips.

[chart
here]

"The
natural pattern-creating processthat
forms seashells, snowflakes, and enamel on teeth has been harnessed by IBM
to form trillions of holes to create insulating
vacuums around the miles of nano-scale wires packed next to each other
inside each computer chip," IBM said in a release.

In
other words, IBM has been able to realize a scientists' old dream - bring
a space age technology to Earth, and apply it in real world manufacturing
environment.

As
a result, Big Blue researchers have proven that the
electrical signals on the chips can flow 35 percent faster, or the chips
can consume 15 percent less energy compared to the most advanced chips
using conventional techniques, IBM also said in a release.

With its latest announcement, "IBM is hoisting a flag on Moore's
Law," said Bob Djurdjevic, president of Annex Research, a market
research and consulting firm in Scottsdale, Ariz. "What it does
immediately for IBM is earn it some bragging rights" (a quote from the
Los Angeles Times, May 3).

Economist
Warns of Dangers of Globalization

The
final speaker of the May 1 morning session at the IBM Partnerworld 2007
was Dr. Laura Tyson, an economist who is a senior advisor at the McKinsey
Global Institute. She was introduced as "one of the top 25 most
influential women in the world."

[charts & photos here]

Dr. Tyson noted that global
trade has been growing faster than output for the last 40 years as
globalization economic effect. The trade's share of the world GDP is
now 30%, she said. So clearly, globalization is on the rise.

Furthremore, everybody seems to
be taking the globalization as axiomatic goodness. But as has often
been the case in the past, those who do not learn from history are doomed
to repeat it. Some of the thing Dr. Tyson said should be heeded by
today's business leaders, including IBM's, as a warning that the
globalization they are pushing may lead to some undesirable results.

"Globalization can lead to
'creative destruction'," she warned.

She pointed out that during a
part of the industrial revolution (1870-1914), the world experienced
another period of intense globalization. Just as this is now
happening under the leadership and the strength of the American economy,
back then the Britain and its Commonwealth were the catalysts and
champions of that global trend.

"The world was about as
integrated back then as it is now." Dr. Tyson noted.
"Cross border flows of people were even greater back
then." It was a world of rampant and practically unrestricted
immigration that fed the insatiable need for labor that the industrial
production created.

But as is the case with all
major economic changes and disruptions, there were winners and there were
losers. The losers fought back. Worker revolutions, protective
tariffs, and two world wars followed.

"That round of
globalization ended badly," Dr. Tyson noted. "It wasn't until
the mid-1950s that the world began to (re) globalize slowly again."

[snip]

[charts & photos here]

Above is the view of the stage from
high up in the St. Louis Dome stands as the participants were filing out
after the May 1 morning session.

"That's
all she wrote," we're afraid, for those of you who are NOT Annex
Research clients, who are now reading the complete Annex Bulletin, along
with many tables and charts that back up our forecast.

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